Company voluntary arrangement
What is a CVA?
A Company Voluntary Arrangement (CVA) is a way of protecting your business from creditor action, providing a valuable opportunity to look at ways in which it can be saved. It’s a way of making a legal arrangement with your creditors, and requires 75% of them by value to vote in favour for it to go ahead. Once agreed, it’s legally binding, even on those who didn’t vote.
When is it appropriate to use a CVA?
If there are warning signs that your business is likely to become insolvent, then this is the time to consider a CVA. By being proactive and voluntarily entering into this arrangement, you could be giving your business the best chance of survival. This is the point at which HW Fisher & Company is often asked to step in, and our early intervention has enabled many businesses to be successfully turned around. We act as your Insolvency Practitioner and will work out an arrangement that covers the amount of debt you can repay, draw up a payment schedule and put it to your creditors for approval.
What are the benefits?
If your business has a viable long-term future, but is suffering financial distress, a CVA represents an opportunity to avoid your company being wound up. A CVA allows you to continue trading and effectively freezes your old debts and defers your payments to creditors. From a creditor’s perspective, a CVA can be preferable to liquidation as they are likely to receive more by way of payment under this arrangement.
At the end of the CVA, which can vary in length but is typically three to five years, any remaining debt is written off and the business has the opportunity to return to profitability.
The other advantages are that a CVA is not as costly as other alternatives, and there is no requirement to publicise the fact, meaning that it is less damaging to a company’s public profile.
What are the disadvantages?
A CVA can have disadvantages, not least that it requires all directors to agree to the proposition. This is where our advice and experience can really help; we are able to review the company’s prospects and give an unbiased view of the best course of action to take in order to save the business.
One of the practical disadvantages is that some lenders and suppliers may not wish to extend credit in the future if they know that the directors have entered into a CVA.
You will need to be aware that secured creditors are not bound by the agreement and could still call in an administrator, even if the terms of the CVA are being adhered to.
Will I be personally liable?
As a director there is no impact on you or your credit rating. As the company’s debt will be settled as a result of the CVA, it is unlikely any personal guarantees you may have given will be called upon.
Please note, that If you are a sole trader or self-employed, then you will need to apply for an IVA rather than a CVA.
How long does a CVA take to put in place?
A CVA can take as little as 3 weeks to put in place. We’ll begin by preparing a proposal which usually takes about a week to compile. It will then need the approval of your creditors which will require them to attend a meeting and vote on it. If they are in agreement, then it is approved.